Papua New Guinea: Overview

Competition regulation came into effect in Papua New Guinea in 2002, following the statutory establishment of the Independent Consumer and Competition Commission (ICCC). Since that time, the ICCC has operated as PNG's primary economic regulatory body and consumer watchdog, placing competition law at the forefront of the country's most important and pervasive pieces of business regulation.

Background

The introduction of competition laws in PNG has been seen not only as a fundamental requirement for strengthening market forces and thereby encouraging economic development, but as a government response to the weak economic regulation of state-owned enterprises in years past that has led to higher prices, lower quality goods and services, and a lack of innovation.

Much of the importance played by competition law in PNG can be credited to the ICCC. The competition regulator has grown in size and experience and has increased its resources for enforcement and educational purposes. The result is that, while many PNG markets have come under the ICCC microscope as a result of merger activity or other anti-competitive conduct, the ICCC itself has commenced a series of competition reviews into certain PNG industries such as international aviation, telecommunications, housing and real estate, tourism, water, electricity, taxis, coastal shipping and fire and general insurance.¹

The legislation

The ICCC Act 2002 (the Act) came into effect on 16 May 2002. Part VI of the Act, which contains provisions dealing with competitive market conduct including antitrust violations and procedures for seeking immunity for anti-competitive behaviour, came into effect on 16 May 2003.

The Act seeks to promote competition and fair trading, regulate the prices of certain goods and services and protect the interests of consumers in PNG. ² The Act seeks to achieve these objectives by containing antitrust violations, imposing product safety and information standards and establishing a regulatory regime for businesses connected to state-owned entities.

The ICCC

The ICCC is an independent body that reports directly to parliament and is responsible for ensuring compliance with and enforcement of the Act. It has broad-ranging and pervasive powers to investigate possible contraventions of the Act. For instance, the ICCC can exercise the following powers if it reasonably believes that it is necessary or desirable to do so in order to perform its functions:

• summon witnesses, take evidence on oath and require the production of documents;

• require a person to furnish information and answer questions;

• enter and search premises, inspect documents and take samples (a search warrant is required from a magistrate);

• retain documents and take copies; and

• order regulated entities to keep accounting records in accordance with specified guidelines.³

The ICCC has stated that its mission is 'to foster an informed and fair PNG market'⁴ and 'enhance the welfare of Papua New Guineans through the promotion of competition and fair trade in the market, protection of consumer interests and regulation of prices and service delivery standards in respect of State owned entities'. ⁵ The ICCC seeks to enhance compliance with the Act through education, compliance and enforcement⁶ and has increased its focus in relation to consumer products and product safety through the establishment of a Consumer Product Consultative Committee. ⁷

The ICCC consists of three standing commissioners (the commissioner and two associate commissioners). The ICCC may appoint any number of temporary associate commissioners to meet the needs of a specific inquiry. Associate commissioners are appointed by the government on the advice of the ICCC when an inquiry may either require or benefit from expertise that is not readily available within the ICCC. In this regard, the ICCC has been willing to use Australian and New Zealand experts in performing its functions. Given that many provisions of the ICCC Act are substantially similar to Australia's and New Zealand's competition laws, ⁸ this approach is likely to have assisted the ICCC in becoming a more effective and efficient regulator in a short period. The ICCC has one head office and four regional offices, with more than 50 staff.

The ICCC also has the power to undertake pricing reviews of 'declared' goods or services under the Prices Regulation Act 1949.⁹

Regulation of utilities

Regulated entities, regulated goods and regulated services

Part III of the Act establishes a regime under which the minister or the ICCC can declare an entity as a 'regulated entity' or the goods or services which an entity supplies as 'regulated goods' or 'regulated services'. An entity and the goods or services it supplies can only be declared as 'regulated' if, among other things, the entity carries on business using assets transferred to it from a state-owned entity. The company will only be subject to part III if it meets this criterion.

Regulatory contracts

If an entity is declared as a 'regulated entity' or the goods or services which it supplies are declared as 'regulated goods' or 'regulated services', the entity may be issued with a 'regulatory contract' by the minister or the ICCC. A regulatory contract controls a number of matters relating to the supply by the regulated entity of regulated goods or services, including the prices at which those goods or services are supplied, the standards which those goods or services must meet, and the conditions on which those goods or services must be supplied.

In issuing a regulatory contract, the ICCC (but not the minister) must take into account a number of economic, investment, industry and financial factors.

Compliance and penalties

A regulated entity must comply with and the ICCC can order compliance with an issued regulatory contract. If the order is contravened, the regulated entity may have to provide an undertaking that it will comply with the terms of the contract. The entity can also be fined up to 10 million kina. An account of profits is available against a regulated entity that profits from a contravention.

Antitrust laws

Introduction

Part VI of the Act regulates competitive market conduct by prohibiting a number of anti-competitive practices. The application of part VI extends to conduct outside PNG by a person that is a resident of or carries on business in PNG, to the extent that the conduct affects a market in PNG (section 47(1) of the Act).

General prohibition

Section 50 of the Act prohibits the making of or the giving of effect to a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition. Section 51 is a similar prohibition that relates to covenants. A provision of a contract, arrangement or understanding or a covenant that contravenes these sections will be unenforceable.

Targeted exclusionary conduct

Section 52 of the Act prohibits the making of or the giving of effect to an exclusionary provision between persons that are in competition with each other, unless it can be shown that the exclusionary provision did not have the purpose, effect or likely effect of substantially lessening competition in a market.

An exclusionary provision is a provision of a contract, arrangement or understanding that has the purpose of preventing, restricting or limiting the supply of goods or services to, or acquisition of goods or services from, any particular person or class of persons, either generally or in particular circumstances or on particular conditions, by any of the parties to the contract, arrangement or understanding.

For an exclusionary provision to contravene the Act, the particular person or class of persons to which the provision relates must also be in competition with one or more of the parties to the contract, arrangement or understanding. An exclusionary provision that contravenes the Act will be unenforceable.

Price fixing

Section 53 of the Act prohibits the making of or the giving of effect to a contract, arrangement or understanding that has the purpose, effect or likely effect of fixing, controlling or maintaining the price, discount, allowance, rebate or credit in relation to goods or services supplied or acquired by the parties to the contract, arrangement or understanding where those parties are in competition with each other. Section 57 is a similar prohibition that relates to covenants.

Sections 54 to 56 of the Act provide that certain joint ventures, price recommendations and joint buying and promotion schemes do not constitute price fixing for the purposes of section 53 of the Act.

Taking advantage of market power

Section 58 of the Act prohibits a person with a substantial degree of power in a market from taking advantage of that power for any of the following purposes:

•to restrict the entry of a person into a market;

• to prevent or deter a person from engaging in competitive conduct in a market; or

•to eliminate a person from a market.

Resale price maintenance

Sections 59 and 60 of the Act prohibit resale price maintenance by suppliers and third parties, respectively.

In relation to suppliers, resale price maintenance occurs if a supplier will not supply goods or services to another person unless that person agrees not to resupply the goods or services at a price less than that specified by the supplier. In relation to third parties, resale price maintenance occurs if a third party, either alone or in concert with any other person, seeks to hinder or prevent the supply of goods or services to a person unless that person agrees not to resupply the goods or services at a price less than that specified by the third party.

Business acquisitions

Section 69 of the Act prohibits acquisitions of assets of a business or shares that would have, or would be likely to have, the effect of substantially lessening competition in a market. This section also applies to acquisitions of assets of a business or shares by a person that occur outside PNG (offshore acquisitions) to the extent that an acquisition affects a market in PNG - irrespective of whether or not the person is a resident of or carries on business in PNG (section 47(2) of the Act).

Exemptions

Sections 65 to 67 of the Act provide a number of exemptions to the operation of part VI. The exemptions relate to partnerships, contracts of service and restraints of trade, sale of business and protection of goodwill, compliance with standards, terms in employment contracts, export of goods from PNG, related corporations, the carriage of goods by sea and intellectual property rights.

Authorisations and clearances

A person can apply to the ICCC to authorise certain conduct that would otherwise contravene the prohibitions relating to general anti-competitive practices, targeted exclusionary conduct, resale price maintenance and business acquisitions. Conduct will not contravene the Act only to the extent that it is authorised.

A person can seek a clearance from the ICCC in relation to a proposed business acquisition. The difference between a clearance and an authorisation is that for an authorisation the ICCC will consider whether the public benefits arising from the conduct outweigh the anti-competitive detriment. For clearances, the ICCC only considers whether the transaction will substantially lessen competition in a market. The ICCC must grant or deny an application for clearance within 20 days of the application, whereas an authorisation can take up to 72 days from the date of the application.

The government can exempt conduct that would otherwise be in contravention of the Act. For example, by way of legislative regulation, a project agreement regarding the establishment of an oil refinery in PNG was exempted from the antitrust prohibitions even though it was likely to result in significant anti-competitive outcomes.¹⁰

Penalties and remedies

Corporations may be liable to pay up to 10 million kina for a contravention of the antitrust laws under part VI of the Act. Individuals may be liable to pay up to 500,000 kina for each contravention. Persons that are involved in contraventions as accessories may also be liable to pay pecuniary penalties as the court thinks fit.

The ICCC or any person can apply for an injunction to restrain a person engaging in conduct that constitutes a contravention of part VI of the Act and a person is liable in damages for any loss or damage caused by that person's conduct where the conduct is in contravention of part VI of the Act. Section 101 of the Act provides the court with wide powers to make remedial orders for contraventions of part VI of the Act, such as varying and cancelling contracts and making orders for restitution or compensation.

The ICCC can also apply to the court to make an order that a person shall be restricted from being involved in the management of a corporation for up to five years if the person has contravened the prohibitions against price fixing or targeted exclusionary conduct.

Consumer protection laws

Introduction

Part VII of the Act provides the ICCC with wide powers and functions to protect consumers and promote product safety and information standards. The ICCC can formulate consumer policies, receive and investigate consumer complaints, make consumer information available, establish consumer codes and advise consumers generally.

The minister may declare consumer product safety or information standards. 'Consumer' is defined in the Act as a person who acquires goods or services for personal, domestic or household use.

Prohibitions

A person is prohibited from supplying goods to consumers if they do not comply with a prescribed consumer product safety standard, if they are declared as unsafe, if they are permanently banned or if they do not comply with a consumer product information standard.

Unsafe goods

The ICCC can issue warnings to the public about certain goods it is investigating to determine whether they cause injury to any person and the possible risks involved in using the goods. The ICCC must also issue the results of any investigation it conducts. If the ICCC considers that goods may cause injury to any person, it can declare the goods as unsafe. Unsafe goods will be permanently banned if 18 months has passed since the declaration and no prescribed consumer product safety standard has been established in respect of the goods.

Product recall

The ICCC can order a recall of any product that it considers unsafe or that does not comply with the relevant prescribed standards. The ICCC can also order a supplier to replace or repair unsafe goods or goods that do not comply with the prescribed standards. It can also order a supplier to offer refunds to consumers.

New regulator for the telecommunications industry

The recent passing in PNG's parliament of the National Information and Communications Technology Authority Bill 2009 (NICTA) on 24 November 2009 will see the ICCC no longer performing the telecommunications industry regulatory function it previously administered under the Act. NICTA will now perform the functions previously administered by the ICCC in relation to licences, codes and rules made under the Telecommunications Act 1996. The ICCC has voiced its concerns about the effect the transition will have on both continuity with the telecommunications industry and the ICCC's budget, considering the licence fees that formed part of the ICCC's budget will be delegated to the NICTA. ¹¹

ICCC decisions and activities to date

Since its inception, the ICCC has exercised its decision-making powers in a variety of circumstances and markets. To date, it has granted five authorisations and 10 clearances, and sought only one undertaking. Although the ICCC's activities appear diminutive when compared with the number of decisions made by competition regulators in neighbouring developed countries, it continues to operate as a vigorous regulator and is likely to continue to expand its role in and influence over PNG trade and commerce.